4 Budgets You Can Actually Use

  • Discovering the budget that works for you can be a fun and empowering exercise.
  • With four distinct budget types, over time you’ll be able to find a good budget practice, save more, and spend wiser on actual needs versus want.

Let’s take a minute to talk about the “B” word. No, not that B-word. I’m talking of course about a “budget.” 

For most people, living on a budget is synonymous with sitting at home alone on a Friday night and eating Top Ramen—while your friends hit up the hot new sushi spot in town.

In actuality, a budget is a sound financial tool to carry you from where you are to where you want to be.

When you’re in control of a budget, you’re telling your money where to go, instead of wondering where the heck it all went.

But before you attempt to go it alone, here are four different types of budgets you can try on for size before sticking to one. Here are the four budgeting methods to try: 

Zero-Based Budget

In a zero-based budget, the goal is to take the money you earn during a specific time period, say a month, and then subtract your expenses until you end up at zero.

Start by subtracting all of your fixed monthly expenses such as your rent or mortgage, car insurance, Internet service, minimum payments on credit cards, and any other fixed payment monthly bills.

Then, subtract all of your variable expenses that change each month, such as your phone bill, groceries, and gas.

Anything left over should go toward debt repayment or savings.

Cash Envelope Budget

A cash envelope budget describes the physical management of allocating cash spendings across labeled envelopes. For this type of budgeting system, you would only use your debit card or automatic withdrawal for fixed monthly expenses, such as your rent or mortgage, utilities, or your car payment.

For everything else, create separate envelopes for expenses such as groceries, gas, and eating out, and place your monthly budget for each in the corresponding envelopes (in cash, of course).

If you exceed your budget in one category, you’re out of luck,  or you’ll have to take the money out of another envelope’s budget for that month. Any cash left across your envelopes at the end of the month means you’ll have a little extra to really treat yourself the next month, pay toward debt, or give your savings a boost.

While this method may require more manual, hands-on involvement, the tangible act of spending only what you physically have may help prevent you from going overboard with buying on plastic. 

50-30-20 Budget

The 50-30-20 budgeting system is as straightforward as it sounds. For this method, you would allocate 50% of your earned income on needs, 30% on wants, and 20% on savings or repaying debt.

This method is fairly cut-and-dry, but can give you a baseline for prioritizing actual needs versus wants, while also helping to boost savings.

A tip on establishing needs versus wants: Imagine you need a pair of sensible nude pumps. You may want the designer label, but you exert control by acknowledging the difference between what you need versus want, and you end up buying a great quality shoe from a more affordable designer.

If you find it difficult to categorize between needs versus wants, the 50-30-20 budget can be especially helpful to remove the emotions associated with choosing.

Once you’ve identified your wants, challenge yourself to spend half of what you would normally spend, or if you’re feeling super motivated, spend even less. Nailing this strategy can not only boost your savings or your debt repayment potential, but also provide a practical approach to budgeting.

The Savings Snowball Method

Personal finance expert Dave Ramsey coined the debt snowball method as a debt payoff strategy, where you would pay the minimum due on all of your debts while throwing anything extra at the debt with the lowest balance until paid off. Then, move on to  the next lowest debt balance, pay it off, and repeat.

You can use this same theory for budgeting. Create your list of monthly fixed and variable expenses, paying those first, then throw anything left over toward a savings goal, for say, an emergency fund of three months of your monthly rent or mortgage.

Once you’ve met this savings goal, move toward a second aspirational goal, such as a dream vacation for the family, or a down payment toward a new home. The savings snowball is highly effective reverse method on the debt snowball, and an excellent way to gain momentum as you see your savings increase.

Tips to Get Started

Before you attempt to establish a budget, get a sense of your current spending habits.

Budgeting apps are much easier than tracking everything in a spreadsheet. You can link all of your accounts and track your spending in real time.

Following a good budget practice doesn’t have to be frustrating, nor should you have to suffer and neglect yourself from having any fun. Rather, it’s a learning opportunity to prioritize areas of your life so that you have more resources to experience or have the things you love most. If you resolve to give it a shot and stick with it, you won’t look back in regret. And who knows, you may even have a little fun in your newfound financial empowerment.